The Fed Is In A Pickle

Tomorrow, the Federal Open Market Committee (FOMC) will conclude a two-day meeting. The central bank is not expected to change its current interest rate policy, but it could signal that they may begin to taper their current $125 billion worth of monthly asset purchases. The market might be expecting a change in the verbiage from the Fed, but will it hold up if that does happen? The central bank has repeatedly said that they are comfortable with higher inflation and letting the economy run hot. Earlier today, the Producer Price Index (PPI) increased 0.8% month over month in May, and core producer prices increased 0.7% month over month. At this time, it will be important to see how the Federal Reserve addresses this issue.

Should the Federal Reserve get a bit hawkish it would be a change in character for them. This would likely strengthen the U.S Dollar and hurt commodity prices as well as stocks. If the Fed remains dovish then there is a good chance that the U.S. Dollar weakens and stocks continue to rally higher. Commodities would also likely benefit as well. It is now in the Fed's hands, but they look like they are in a pickle as the inflation data continues to pour in. There is one thing that is certain, this will be one of the most important FOMC meetings we have seen in a long time.

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